GST - INTRODUCTION

GST India – Goods & Service Tax

Goods and Service Tax is being glorified as a system of taxation by which economy will take an upward swing and further it will ease the trade and industry with respect to the indirect tax system of the country. “Only one” indirect tax has to be paid by the trade and industry and all the other indirect taxes will be subsumed in GST.

What is GST ?

GST is a consumption based tax levied on sale, manufacture and consumption on goods & services at a national level. GST is an Indirect Tax which has replaced many Indirect Taxes in India. Exports and direct tax like income tax will not be affected by GST. GST apply to all goods other than crude petroleum, motor spirit, diesel, aviation turbine fuel and natural gas. It is applied to all services barring a few to be specified. With the increase of international trade, GST has become a global standard. GST tax system take the form of “dual GST” which is concurrently levied by central and state government. This will comprise of:

• Central GST (CGST) that will be levied by Center
• State GST (SGST) that will be levied by State
• Integrated GST (IGST) – that will be levied by Central Government on inter-State supply of goods and services.

Taxes which are subsumed under GST

Central Indirect Taxes & Levies Central Excise Duty Additional Excise Duties Excise Duty levied under the Medicinal Preparations (Excise Duties) Act, 1955 Service Tax Additional Customs Duty (CVD) Special Additional Duty of Customs Central Surcharge and Cess State Indirect Taxes & Levies VAT / Sales Tax Entertainment tax (other than the tax levied by local bodies) Central Sales Tax Octroi and Entry Tax Purchase Tax Luxury Tax Taxes on Lottery Betting and Gambling State Cesses and Surcharges

Who will pocket taxes?

Within State Transaction : In case of Intra State transactions, Seller collects both CGST & SGST from the buyer and CGST needs to be deposited with Central Govt. and SGST with State Govt.

For State to State Transactions : Integrated Goods and Service Tax (IGST) shall be levied on Inter State transactions of goods and services which are based on destination principle. Tax gets transferred to Importing state. More over it is proposed to levy an additional tax on supply of goods, not exceeding one percent, in the course of inter-state trade or commerce, to be collected by the Central Govt. for a period of two years, and assign to the States where the supply originates. Valuation of stock transfers to be determined. Exports and Supplies to SEZ units will be zero rated.

GST Example

take apparel manufacturing as an example and 5% as the GST applicable.

The manufacturer buys raw material worth INR 500 on which GST comes to INR 25 (5% of 500).

He then adds his own value of INR 100 to the materials during the manufacturing process. This brings the gross value of the product to INR 625 (Include GST INR. 25)

Now,  Manufacturer sells the apparel to wholesaler at INR 700. GST on sale would be INR 35, he can set some of his tax off as he has already paid it while purchasing the raw materials. Therefore, the final GST that the manufacturer is obliged to pay, will be of INR 10 (35-25) (total tax amount till now minus the tax he has already paid).